EMPLOYEES BENEFIT PLANS

12 Months Ended

Dec. 31, 2020

Employees' Benefit Plan [Abstract]

Employees' Benefit Plan [Text Block]

NOTE 24 – EMPLOYEE BENEFIT PLANS

Defined Benefit Retirement Plans

The Corporation maintains two frozen qualified noncontributory defined benefit pension plans (the “Pension Plans”), and a related complementary post-retirement benefit plan covering medical benefits and life insurance after retirement that it obtained in the BSPR acquisition (the “Postretirement Benefit Plan”). One defined benefit pension plan covers substantially all former BSPR’s employees who were active before January 1, 2007 (the “BSPR Plan”), while the other defined benefit pension plan covers personnel of an institution previously-acquired by BSPR. Benefits are based on salary and years of service. The accrual of benefits under the Pension Plans is frozen to all participants.

The Corporation requires recognition of a plan’s overfunded and underfunded status as an asset or liability with an offsetting adjustment to accumulated other comprehensive loss pursuant to the ASC Topic 715, Compensation-Retirement Benefits. Actuarial gains or losses, prior-service costs, and transition assets or obligations are recognized as components of net periodic benefit costs.

Year Ended December 31, 2020	Pension Plans		Postretirement Benefit Plan
(In thousands)
Changes in projected benefit obligation:
Projected benefit obligation, September 1	$	107,571	$	235
Interest cost		900		2
Actuarial loss (1)		1,321		28
Benefits paid		(1,539)		(20)
Projected benefit obligation, December 31	$	108,253	$	245
Changes in plan assets:
Fair value of plan assets, September 1	$	104,522	$	-
Actual return on plan assets		2,980		-
Benefits paid		(1,539)		-
Fair value of plan assets at the end of period		105,963		-
Net benefit obligation	$	(2,290)	$	(245)
(1) Significant components of the Pension Plans’ actuarial loss that changed the benefit obligation were mainly related to updates in discount and mortality rates.

The following are the pre-tax amounts recognized in accumulated other comprehensive loss:
Year Ended December 31, 2020	Pension Plans		Postretirement Benefit Plan
(In thousands)
Net actuarial loss	$	404	$	28
Net amount recognized	$	404	$	28

The weighted-average assumed discount rate to determine the projected benefit obligations as of December 31, 2020 was 2.36%.

Financial data relative to the Pension Plans and the Postretirement Benefit Plan is summarized in the following tables:

Period from September 1, 2020 to December 31, 2020	Location	Pension Plans			Postretirement Benefit Plan
(Dollars in thousands)
Net periodic benefit (income) loss:
Interest cost	Other expenses	$	900		$	2
Expected return on plan assets	Other expenses		(2,062)			-
Net periodic benefit (income) loss			(1,162)			2
Pre-tax amounts recognized in OCI:
Net actuarial loss			404			28
Net amount recognized in OCI			404			28
Total net periodic pension (income) loss recognized
in total comprehensive income, pre-tax		$	(758)		$	30
Weighted average assumptions used to determine
net periodic pension cost:
Discount rate			2.36	%		2.44	%
Expected return on plan assets			5.99	%		N/A	%

The discount rate is estimated as the single equivalent rate such that the present value of the plan’s projected benefit obligation cash flows using the single rate equals the present value of those cash flows using the above mean actuarial yield curve. In developing the expected long-term rate of return assumption, the Corporation evaluated input from a consultant and the Corporation’s long-term inflation assumptions and interest rate scenarios. Projected returns are based on the same asset categories as the plan using well-known broad indexes. Expected returns are based by historical returns with adjustments to reflect a more realistic future return. Adjustments are done by categories, taking into consideration current and future market conditions. The Corporation also considered historical returns on its plan assets to review the expected rate of return. The Corporation anticipated that the Plan’s portfolio would generate a weighted annual long-term rate of return of 5.99%. The investment policy statement for the Pension Plans includes: (i) liability hedging assets to reduce funded status risk, (ii) diversified return seeking assets to reduce equity risk, and (iii) establishes different glidepaths specific for each plan to systematically reduce risk as the funded status improves.

The following presents the changes in accumulated other comprehensive loss of the Pension Plans and Postretirement Benefit Plan as of December 31, 2020:
Year ended December 31, 2020	Pension Plans		Postretirement Benefit Plan
(In thousands)
Accumulated other comprehensive loss at beginning of period	$	-	$	-
Net actuarial loss		404		28
Total increase in other comprehensive loss		404		28
Accumulated other comprehensive loss at end of period	$	404	$	28

The following table presents information for the plans with a projected benefit obligation and accumulated benefit obligation in excess of plan assets for the year ended December 31, 2020:
	Pension Plans		Postretirement Benefit Plan
(In thousands)
Projected benefit obligation	$	70,179	$	245
Accumulated benefit obligation		70,179		245
Fair value of plan assets		64,200		-

The Pension Plans weighted-average asset allocations as of December 31, 2020 by asset category are as follows:
	December 31, 2020
Asset category
Equity securities	0%
Debt securities	0%
Investment in funds	98%
Other	2%
	100%

The Corporation does not expect to contribute to the Pension Plans during 2021.

The Corporation’s investment policy with respect to the Corporation’s Pension Plans is to optimize, without undue risk, the total return on investment of the Plan assets after inflation, within a framework of prudent and reasonable portfolio risk. The investment portfolio is diversified in multiple asset classes to reduce portfolio risk, and assets may be shifted between asset classes to reduce volatility when warranted by projections of the economic and/or financial market environment, consistent with Employee Retirement Income Security Act of 1974, as amended (ERISA). As circumstances and market conditions change, the Corporation’s target asset allocations may be amended to reflect the most appropriate distribution given the new environment, consistent with the investment objectives.

Expected future benefit payments for the plans are as follows:

		Pension Plans		Postretirement Benefit Plan
(Dollars in thousands)
2021	$	6,415	$	57
2022		6,935		47
2023		6,862		38
2024		6,793		30
2025		6,299		24
2026 through 2030		28,944		58
	$	62,248	$	254

As of December 31, 2020, substantially all of the plan assets of $106 million were invested in common collective trusts, which primarily consist of equity securities, mortgage-backed securities, corporate bonds and U. S. Treasuries. The portfolios in both plans have been measured at fair value using the net asset value per unit as a practical expedient as permitted by ASC Topic 820, and accordingly, have not been classified in the fair value hierarchy as of December 31, 2020.

Determination of Fair Value

The valuation process begins with market quotations for the individual security. Since many fixed maturities do not trade on a daily basis, each asset class is evaluated on its own based on relevant market information, relevant credit information, perceived market movements, and sector news. The market inputs utilized in the pricing evaluation, listed in the approximate order of priority, include: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, two-sided markets, benchmark securities, bids, offers, reference data, and industry and economic events. The extent of the use of each market input depends on the asset class and the market conditions. Depending on the security, the priority of use of inputs may change or some market inputs may not be relevant. Additional inputs may be necessary for some securities. Some fair value estimates are determined from quotes provided by market makers or broker-dealers that are considered to be market participants and are considered to be an estimate of fair value that is indicative of market transactions.

The following is a description of the valuation inputs and techniques used to measure the fair value of pension plan assets:

Investment in Funds - Investment in collectible funds have been measured at fair value using the net assets value per unit practical expedient and, accordingly, have not been classified in the fair value hierarchy.

Interest-Bearing Deposits - Interest-bearing deposits consist of money market accounts with short-term maturities and, therefore, the carrying value approximates fair value.

Defined Contribution Plan

In addition, FirstBank provides contributory retirement plans pursuant to Section 1081.01 of the Puerto Rico Internal Revenue Code of 2011 for Puerto Rico employees and Section 401(k) of the U.S. Internal Revenue Code for USVI and U.S. employees (the “Plans”). All employees are eligible to participate in the Plans after three months of service for purposes of making elective deferral contributions and one year of service for purposes of sharing in the Bank’s matching, qualified matching, and qualified non-elective contributions. Under the provisions of the Plans, the Bank contributes 50% of the first 6% of the participant’s compensation contributed to the Plans on a pretax basis, up to an annual limit. The matching contribution of fifty cents for every dollar of the employee’s contribution is comprised of: (i) twenty-five cents for every dollar of the employee’s contribution up to 6% of the employee’s eligible compensation to be paid to the Plan as of each bi-weekly payroll; and (ii) an additional twenty-five cents for every dollar of the employee’s contribution up to 6% of the employee’s eligible compensation to be deposited as a lump sum subsequent to the Plan Year. Puerto Rico employees were permitted to contribute up to $15,000 for each of 2020, 2019 and 2018 (USVI and U.S. employees - $19,500 for 2020, $19,000 for 2019 and $18,500 for 2018). Additional contributions to the Plans may be voluntarily made by the Bank as determined by its Board of Directors. No additional discretionary contributions were made for the years ended December 31, 2020, 2019 and 2018. The contributory savings plan assumed in the BSPR acquisition also provided for matching contribution up to 6% of the employee’s compensation. The Bank had total plan expenses of $3.0 million, $2.9 million and $1.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.